Another D.C. idea Iowa can’t afford

By John Dunham

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It would be nice to think that the long and deep recession has finally ended and that the Hawkeye state has seen the end of its job losses. Unfortunately, for major hog producing states like Iowa, the U.S. Department of Agriculture has a surprise that could cost Iowa dearly in jobs and tax revenues and cost Iowans more at the supermarket.

An obscure bureaucratic regulation is being proposed by USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA). If enacted, it could have a significant impact in Iowa by dismantling widely used business models between livestock producers and meatpackers.

According to industry legal experts, the regulation would, among other things, adversely affect meatpackers and their suppliers' willingness to use marketing agreements. The proposed rule increases the risk associated with using marketing agreements because it would change long-standing judicial precedent and make it easier for a disgruntled supplier to sue and win in a lawsuit. In doing so, the proposed rule creates a disincentive for packers to use such agreements.

These limitations will introduce inefficiencies into the existing livestock marketing system, and reduce selling options for livestock producers, while at the same time increasing price, quality and supply variability for packers.

As an economist who makes his living studying and modeling the economic impact of government regulations on businesses and industries, I have seen the unintended consequences of misguided policy proposals like the one being pushed by GIPSA.

The American Meat Institute recently commissioned me to conduct a study on the economic impact of the proposed rule. My findings indicate that, if enacted, the rule will cost Iowa more than 3,700 jobs, with lost wages totaling more than $123 million and the total economic impact surpassing $630 million.

Even the federal and Iowa state governments will be negatively affected from lost business and personal tax revenues, totaling $46 million.

Nationwide, if the rule moves forward, the U. S. will lose 104,000 jobs, along with approximately $14 billion in total revenue, much of which is spent in small towns and rural areas. As my analysis shows, these are not just jobs in meat packing or livestock production, but in nearly every sector of the American economy.

It's hard to imagine how a rule that imposes additional costs on rural America could help the farm economy in any way. In fact, it is hard to fathom why the federal government would promulgate a policy that would cost this country any jobs given the current state of the economy.

USDA's own economic data from 2007 reveals that altering the status quo in the manner proposed by the new rule could cost consumers and producers $60 billion over the next 10 years.

Furthermore, according to our study, Iowans specifically would end up paying almost 3.5 percent more for their meat products. While this may seem small, it means that every resident of Iowa who goes to a grocery store, a butcher or a restaurant and chooses to eat meat will pay more as a result of the proposed regulation - and not one of them will see any direct benefit.

Iowa simply cannot afford to lose more jobs and more tax revenues. This proposed regulation should not be implemented.

John Dunham, president of John Dunham & Associates, specializes in the economics of how public policy issues affect products and services. His research has been published in a number of refereed journals including Economic Inquiry. Comments: jrd@guerrilla

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